I am planning on starting a very small shop basically to employ myself. I already have basic tools... I might need to buy some but right now I can build cabinets and some furniture with what I have. I also have 40k in the bank. I wonder if that would be enough to bring the business afloat. Rent would be around 500 per month for a 600 sq ft. Right now I am making around 35k per year. Do you guys think I can make it with what I have to at least make as much as I am making in my current job? Please advise and thank you!
Dan, that's great that you want to start something new. Being concerned about working capital is also a top priority.
Have you included your living expenses in working capital? The biggest concern is where sales are going to come from? Do you have an outlet for your product?
I should not worry about rent and food... my wife is willing to cover that. Of course she is putting some pressure since we could use that money as down payment for a house. Other than that, I don't have too many expenses. As for sales, I plan to look for a couple contractors that need some help. I also plan to sell small furniture through the internet. Those would be my initial outlets... what do you think?
Spend all of your capital as quickly as possible. Just kiddin.
If I could start over, knowing what I know now, I would stay small and not spend huge amounts on equipment and shop.
I have always made the best money on sales, design, and installation. I would have a SMALL shop for doing the odd thing not easily outsourced. I would outsource everything else. With companies like Conestoga and Walzcraft and plenty of people with CNCs for hire 90% would be ordered to my specs including finish.
I think that such a small business, maybe growing to a max of 2-4 people would be very profitable and could easily handle fluctuations in volume.
I think you are in a very good position to make money. Make it a business, not a hobby, learn quickly what is profitable to do yourself and what is profitable to outsource.
You need a business plan with projected sales, and income from sales.
Rule of thumb is you need 6 months of operating expenses to open a business, this would include projected material costs, labor costs, insurance, rent, lights, utilities, water, office supplies, and the list goes on. On top of the you need financing or capital to by equipment. Once you know what these numbers are you can think about opening the doors.
I suggest you search for a local score group for FREE help. Its supported by your taxes and it will be the best free time and time investment you can make right now
I was going to post earlier today, but "If I could" beat me to the punch. I echo his thoughts exactly. With only 600 sq ft, you can make ALOT more money designing, project managing, and installing component systems outsourced then you could ever hope for otherwise.
Do not borrow a dime for any equipment. You could get by with a laptop, screwdriver and tape measure for now. let the jobs pay for any machinery. Payments drag you down when the work isn't there.
If you don't already have Quickbooks- get it. Use it to track all of your income and expenses. Assign POs to all of your purchases and make sure to enter it all into QB. At the end of each job run a job profitability report and see how much you made. Learn, learn, learn. Keep adjusting your pricing until you hit a good profit.
"Do you guys think I can make it with what I have to at least make as much as I am making in my current job?" I didn't make $35,000 the first year in business, or the second year either. Nearly went belly up on a miserably underbid kitchen cabinet job at the end of the first year. How good of an estimator are you? Selling small furniture through the internet sounds like a really rough way to go. Lots of places to get small furniture on the internet, and many of them are sourced from overseas. Have you been selling work and honing your business and woodworking skills? Anyone can make it if they have the desire, but it sure isn't easy. If you have a day job, run your business part time until you have too much backlog to do both.Then quit the day job.
I'll follow Rich's thoughts as I've gone a few years without making $35k. But first...is that your "real" income? Most guys forget to include the health insurance, sick days, paid vacations, and any other benefits which add quite a bit to your salary.
There are a million guys out there who can build furniture and/or cabinets. The question is can you run a successful woodworking business? I can't answer it for you that's for sure. I can tell you it's a tough economy and there's still a lot of competition. Where is your work going to come from? How are you going to market yourself? Do you have a specific type of work your ready to go with? You need a good plan of action before taking a leap like this. Contractors can be a good source of work, or not! Most are out there looking for the cheapest stuff they can get. There's a smaller segment that are interested in better quality product, but they'll probably be hesitant to use a new guy just starting out in a small shop.
There's just a lot to consider before taking this leap. Long days and working weekends. Starting to call your shop "home" unintentionally, as that's where you'll spend most of your time. Feast or famine income the first couple years of getting established. One thing you'll have to your advantage though is a ton of useful advice from some of the guys one here. I've learned a LOT from these guys and am still learning on daily basis.
I do not have Quick Books but I sure plan to get it before I start. I have an A A Degree in Business and also have taken some courses in Operations Management and Finace. I have been working in Accounting for over 7 years. I feel I have enough knowledge on that side. Thank you very much for your comment... I appreciate each one.
Keep your day job and ease into the woodworking. Finding a continuous supply of profitable jobs will not be easy. I know from experience it takes more working $ than what most would believe. If you have to live off that 40K and use it as working capital it may be very tight. Material costs can vary widely as a % of the job. You will be paying much more than an established medium size shop. I'd look for a niche market not currently being filled. There are a lot of cabinet shops. Custom furniture is tough, I tried it long ago. I ran some #'s based on my somewhat larger shop. You will need between 9 & 10,000 a month in sales/completions. The catch is the amount of time it takes to get the information out of the customer if you are doing custom work. Don't give them too many options!
If you have a product to sell online make it a narrow niche. For example custom loft and bunk beds. I like Volusion for an easy to set up and low cost ecommerce suite. Good baseline cash flow if you can find a niche that is underserved. p.s. let me know if you make some bunk beds. I want a cool one for growing teen.
disclaimer, i am a Volusion reseller but just to get their improved support plan and have not actually done any reselling outside our company.
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